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26 | Decorative Paints | Business performance | AkzoNobel Report 2009

AkzoNobel Decorative Paints

Of course, innovation remained a priority despite the adverse impact of the global economy and we continued to launch eco-premium products in all our markets. This included the introduction of Dulux All Round Guard throughout China, a product which absorbs and decomposes harmful elements from the air to create a safer home environment. Customer innovation was another key focus area, highlighted by a special program in India which involved educating around 100,000 painters about our Dulux brand portfolio. Dulux also won several awards ­ notably in the UK ­ honoring the sustainable nature of our products. This recognition helped to underline our status as the first major paint manufacturer to make a significant move towards creating credible environmentally sustainable paint products for the consumer and professional markets. I'm also proud to mention a special "Tudo de Cor" project in Brazil, which saw our Coral brand ­ and our employees ­ help to revitalize old neighborhoods in São Paolo and Rio de Janeiro.

"Armed with a new global strategy, we can confidently move forward and reap the rewards of our stronger, more focused organization."

Tex Gunning

Board member responsible for Decorative Paints


Cohesive community

There can be no doubt that 2009 was a challenging year for AkzoNobel Decorative Paints, following the exciting and historic events of 2008. The ongoing integration activities and tough business climate certainly concentrated our focus. But we were determined to turn the economic crisis into an opportunity and used it as an additional drive for change and reinvention as we maintained our push to develop winning businesses in all regions.

Transforming the organization

Our primary focus in Europe during 2009 was on rationalization and removing complexity. We further reduced the number of brands and stock keeping units and made good progress in integrating the supply chain and becoming a more regional/ global organization, as opposed to being organized on a purely local basis. In Asia, we reorganized and created three distinct regional businesses. This now gives us a more direct focus on high growth markets and will help to deliver better profitability in the medium to long term as we target further growth and allocate more resources to our Asian activities. It was a challenging year in the US, but the relaunch of our Glidden brand proved to be highly successful and strengthened our relationship with The Home Depot. In Latin America, the downturn had less of an impact and we achieved good profit levels.

This year was also extremely important in terms of continuing to create the right high performance culture. We have a major transformation agenda committed to creating a cohesive community and we made great strides with our ongoing leadership program. The feedback we have received from employees has been extremely positive and this journey towards providing meaning and inspiration to the whole organization will continue during 2010. Armed with a new global strategy, we can confidently move forward and reap the rewards of our stronger, more focused organization. There is still some progress to be made, but there is no doubt that we will emerge from the downturn in better shape to capture the growth opportunities that a revitalized economy will present.

Integration on track

So while we had to cope with the strong impact of the downturn and carefully manage our margins, particularly in Europe and the US, we remained on track with integrating the former ICI activities and continued to capture the expected savings resulting from the synergies associated with the acquisition. In this respect, our "best of both" approach ­ looking for the best talent, processes and products ­ clearly paid off.


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Strong brands from our portfolio

Key developments and deliverables 2009

· Revenue: 4.7 billion, down 7 percent · EBITDA of 492 million, down 18 percent · More than 35 percent of revenue from high growth markets · Largest global supplier of decorative paints · Global portfolio of strong and leading brands · More than 1,200 managers participated in a major leadership program · Integration and restructuring continued to streamline portfolio

Key figures in millions


Employees by region at year-end 2009 4,677 492 10.5 302 6.5 137 US and Canada Latin America China Other Asian countries The Netherlands Germany Sweden UK

2008 5,700 1,900 700 2,600 1,100 1,700 600 2,300 5,700 1,300

2009 5,200 1,700 1,200 2,200 1,000 1,600 600 2,200 5,400 1,100

Revenue EBITDA EBITDA margin (as a % of revenue) EBIT EBIT margin (as a % of revenue) Operating income/(loss)

5,006 598 11.9 401 8.0 (669)

Revenue breakdown by business unit in %

Other European countries Other regions C




A Decorative Paints Europe B Decorative Paints Americas C Decorative Paints Asia

54 32 14 100 B A Product: Eco-premium solutions as % of sales 2007 2008 15 15 22

Geo-mix revenue by destination


Key value chains with carbon footprint assessment









Total reportable rate of injuries per million hours 2006 2007 2008 2009 6.3 5.7 4.9 4.7

28 | Decorative Paints | Business performance | AkzoNobel Report 2009

Decorative paints market overview

Our Decorative Paints business supplies a full range of interior and exterior decoration and protection products for both the professional and do-it-yourself (DIY) markets, including paints, lacquers and varnishes, as well as products for surface preparation (pre-deco products).

Market and business characteristics

The size of the global market for decorative paints is around 30 billion. Architectural coatings Interior and exterior wall paints and trim paints (lacquers) for consumers and professionals. Woodcare and specialty products · Lacquers and varnishes for wood protection and decoration · Specialty coatings for metal, concrete and other critical building materials. Pre-deco products Fillers, wall treatments, sealants and putties for consumers and professionals. Building adhesives · Tile and floor adhesives and floor leveling compounds used in the building and renovation industry · Supplied for professional workers such as tile, floor and parquet layers, interior decorators and painters · Direct to medium-sized enterprises, wholesalers, specialized retailers. homeowners) to independent dealers (serving both homeowners and professionals) and company-owned stores focused on serving professionals.

Market leadership positions


Global market drivers and developments

· Growing populations and GDP growth · Activity of residential and commercial new-build and home sales · Global increase in importance of home and interior decoration · Rise of middle class in high growth markets · Legislative/regulatory pressures on environmental and health issues (VOC, REACH) driving innovation · Increasing importance of large scale outlets · Growth of importance of women as decision-makers · Increasing importance of internet.


1 · Argentina

· Canada

2/ · Brazil 3 · US 2/ 3 · Germany 2/ · China 3 · India

1 · UK


Drivers for buying decision

Retailers · Strong brands that attract customers · Innovation that drives demand and basket spend · Category management capability. Trade customers · Product quality, consistency and innovation · Product availability and service · Technical and business support · Strong brands supporting loyalty.

Support professional painters with tailor-made products and services · Sikkens object analysis, design support and marketing programs for painters · The Dulux Trade Environmental Wash System and DDC (Dulux Decorator Centres) Paint Can Recycling ­ professional paint waste management systems · Herbol Façade Certification Program · Glidden SpeedWall ­ highly efficient interior wall paint with superior properties for the professional painter. Eco-premium portfolio Recent initiatives: · Dulux Trade Ecosure ­ water-based, high performance professional paint · Sikkens Rubbol XD ­ VOC-reduced, ultra durable professional trimpaint · The Freshaire Choice ­ zero-VOC consumer wall paint · Dulux Light & Space ­ highly light reflective, energy-saving wall paint · Herbol Symbiotec ­ nanotechnology based, dirt repellent wall paint.


Our end-users can broadly be segmented into homeowners (either DIY or BIY ­ buy it yourself), professional painters serving homeowners and commercial contractors. They are served through a variety of outlets ranging from big box chains such as The Home Depot, B&Q and Leroy Merlin (serving mainly


Making decoration easy ­ convenience of application · Cuprinol Sprayable ­ sprayable fence treatment · Hammerite Metalmaster ­ unique "wrap-around" metal protection spray coating · Dulux PaintPod ­ automated, easy-to-use wall paint application system.

Key raw materials · Binders/resins · Titanium dioxide · Packaging materials

Price drivers · Energy, oil and raw material prices · Steel prices

AkzoNobel Report 2009 | Business performance | Decorative Paints | 29

AkzoNobel Decorative Paints Europe

1 Antoine Fady Managing Director Continental Europe 2 Ruud Joosten Managing Director Northern and Eastern Europe 3 Richard Stuckes Managing Director UK, Ireland and South Africa, Building Adhesives

1 2 3

Revenue in millions 2007 2008 2009 Key brands 2,791 2,711 2,533


Despite the significant market decline, AkzoNobel Decorative Paints Europe performed well in many regions, maintaining or increasing market share. Most of the negative impact of lower volumes was offset by tight cost control and restructuring. The integration of the former ICI businesses continued, with the related synergy benefits being achieved earlier ­ and in some cases to a higher extent ­ than originally expected.


We completely refocused our activities in Continental Europe, where the economic climate forced us to reorganize deeper and broader than first anticipated. This was part of the strategic plan to move away from localized operations to a more Europewide organization. We shut down factories in the Ukraine and the Czech Republic and announced additional closures in Poland and France. There are also plans to continue reducing the number of product brands and formulations, which will bring about more savings and simplify our business. This will result in a further improvement in operating working capital, which fell significantly during the year.


The early part of 2009 was particularly difficult, although there was some improvement evident as the year came to an end. Streamlining the portfolio ­ reducing the number of products to concentrate on key strategic brands ­ had a positive affect, while active margin management helped boost results in many countries, notably Sweden, Turkey and Poland. Although market conditions were unfavorable, we continued to invest in promoting our brands and in new innovations and this helped to protect margins and grow market share.


The Dulux PaintPod Compact was introduced, while the Flexa brand was successfully relaunched in the Netherlands and a new range of Dulux trim paints went on sale in France. This year also saw the introduction of the unique Dulux online color testers service, which enables customers to choose from more than 1,900 colors online and then have tester pots delivered to their door. We also launched a variety of VOC compliant paints across the region ahead of the 2010 deadline. In Poland, we successfully scaled up our Pilawa plant, strengthening its position as one of the company's key European sites. We also benefited from preparations for forthcoming high profile events, having supplied products for venues being used at the 2010 soccer World Cup in South Africa and the London Olympics in 2012. In addition, approval was obtained for a single one kit Schönox building adhesive waterproofing system which enables us to sell in all our European markets.


Sales across Europe were heavily impacted by the downturn. The Baltics and the Ukraine were among the worst hit, while Ireland, South Africa and the Nordics also faced very tough trading conditions. The UK do-it-yourself market probably performed better during the recession in 2009 than any other major market in Europe. Our results there were driven by inspirational advertising and communication campaigns and new product launches. Furthermore, despite the challenging economy, we continued to expand our integrated approach to sustainability in all aspects of our business.

30 | Decorative Paints | Business performance | AkzoNobel Report 2009

AkzoNobel Decorative Paints Americas

1 Pierre Dufresne Managing Director Canada 2 Erik Bouts Managing Director United States 3 Jaap Kuiper Managing Director Latin America

1 2 3

Revenue in millions 2007 2008 2009 Key brands 1,768 1,615 1,487


AkzoNobel's Decorative Paints activities in the Americas were heavily impacted by the global recession in 2009, particularly in North America. Volumes dropped in the US and Canada, resulting in lower revenue compared with 2008, but the market was rather more buoyant in Latin America, where a strong focus on merchandising and customers helped to boost sales.


In Canada we worked to align our cost structure to the lower sales volumes and closed down three plants between the end of 2008 and the end of 2009, transferring production to other sites. The headcount was also reduced in the US, where the company-owned stores network was rationalized. Margin management played a key role in mitigating the volume pressure, along with synergy benefits, the latter helping to counter the downturn in Latin America in particular. The management teams in Argentina and Uruguay were merged into one, while we closed our Raposo Tavares site in Brazil and transferred production capacity to the nearby Mauá facility.


In the US, the paint market declined throughout the year. The volume shortfall negatively affected revenue, although market share held steady. Lower sales volumes and higher raw material costs also hit profitability in Canada, where there was a slight loss of market share. The decorative paint market in Brazil remained more or less flat in terms of volume, and while a fall off was evident in Argentina and Uruguay, bottom line results for the Latin American region improved by a double digit percentage.


The relaunch of our Glidden brand in North America proved to be successful. Towards the end of the year, we also became the exclusive manufacturer of a new paint line sold under the Martha Stewart Living brand within The Home Depot. The revamp of our Sparlack woodcare range in Brazil proved to be a success, as was a special project involving our Coral brand designed to help restore and revitalize rundown areas of São Paolo and Rio de Janeiro, the latter as part of preparations for the 2016 Olympic Games. Our Metalmaster electrostatic gun was successfully introduced in Canada, where we also ran the first ever national advertising campaign for our Sico brand, which covered 40 major markets and helped to boost sales despite the declining market. Several new products highlighting our innovative expertise and environmental commitment are due for launch in 2010.


The recession brought about the predicted shift of some professional volume to the do-it-yourself sector in the US, with no catalyst to help increase total demand in evidence before the end of the year. In Canada, the impact of the economic climate varied by region, although overall the Canadian economy was not as severely impacted as the US due to government stimulus programs. Sales to professional painters suffered more as few new construction projects started during the year. Latin America went somewhat against the trend of the global economy. We gained market share in Brazil and performance improved across the South American region propelled by better-than-expected sales, higher margins and rigid efficiency measures.

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AkzoNobel Decorative Paints Asia

1 Jeremy Rowe Managing Director South East Asia & Pacific (SEAP) 2 Amit Jain Managing Director India and South Asia (ISA) 3 Peter Chen Managing Director China & North Asia (CNA)

1 2 3

Revenue in millions 2007 2008 2009 Key brand 635 682 659


Despite the global economic slowdown, AkzoNobel Decorative Paints' overall business performance in Asia was relatively good. Revenue increased and market share grew in several countries, including China, Indonesia, Vietnam and Thailand. Conditions proved to be more testing in India, where the decorative market was impacted by the recession.


Revenue picked up strongly in the second half of the year in China, where integration activities designed to realize the benefits from the 2008 ICI acquisition remained a priority. Low demand in India resulted in a slight loss in market share, but aggressive investment in Southern Asia brought higher growth and additional market share was captured. There was also some improvement in Sri Lanka. Elsewhere, the retail market proved challenging in the largely export-driven economies of Malaysia and Singapore, while record volume levels were achieved in Papua New Guinea, mainly due to several ongoing projects in the mining, oil and gas industries. Growth in South East Asia was driven by a strong performance by the Dulux brand. Cost management and brand rationalization were key areas of attention across the entire region.

especially helpful in Singapore and Malaysia. In other parts of South East Asia, we responded quickly to the changing market conditions and reinvested when the situation improved in the middle of the year. Particular attention was paid to improving channel penetration and brand rationalization. In India, we launched three aggressive programs to help increase sales, which included contacting around 100,000 painters to educate them about the Dulux brand portfolio. A major consumer promotion was also launched.


Dulux All Round Guard was introduced throughout China. The product absorbs and decomposes harmful elements from the air to create a safer home environment. Our Easy Paint service ­ which simplifies the painting experience for consumers ­ was also piloted in several major Chinese cities. In addition, we launched Malaysia's first ever complete range of low odor, low VOC Green Label certified interior emulsion paint, as well as introducing Dulux EasyClean, Dulux Power Plus primer and World of Weathershield across the whole of South East Asia. In Vietnam, our Decorative Paints business was awarded the Golden FDI Enterprise ­ Friendly With the Environment award by the Ministry of Planning and Investment.


There was a strong focus on customers, cost and cash due to the challenging economic conditions. Cost saving opportunities were identified in all countries and various operational excellence programs were introduced designed to improve profitability. Various government stimulus packages designed to give lagging economies a boost also brought some benefits. This was


Together with 20 other corporate members, we formed the Green Building Council of Indonesia and launched an Indonesian initiative designed to establish a program of zero waste from manufacturing. Total recycling of solid waste was achieved by the fourth quarter and the total recycling of liquid waste is projected to have been completed during the first quarter of 2010.

No place like home

We've been working with The Home Depot in North America ­ the world's largest home improvement specialty retailer ­ since 1979. It's an extremely successful partnership which enables their customers to choose from a complete portfolio of quality decorative paints. The strength of this relationship was reinforced during 2009 thanks to the successful relaunch of our Glidden brand and a joint collaboration to develop and produce a Martha Stewart Living range of paints. "Successfully relaunching Glidden paint helped us capture incremental market share during a period of unprecedented decline across all home improvement categories," says Lyne Castonguay, merchandising vice-president and project leader for the Martha Stewart Living brand at The Home Depot. "It also restored one of the great American brands ­ a brand we've proudly stood behind since opening our first home improvement center." Following on from the Glidden relaunch, The Home Depot turned to AkzoNobel to produce a range of products for the Martha Stewart Living brand. "This new program, which is part of a larger merchandising effort across multiple categories of products, is a core strategic priority for our organization and one we believe will allow us to attract a new set of customers to The Home Depot," adds Castonguay. "Clearly, AkzoNobel delivered in 2009 and we look forward to building upon that momentum. We see numerous opportunities as together we work to deliver Tomorrow's Answers Today."

Adding color to people's lives

As the world's largest coatings company, we believe that color has the power to change people's lives. This belief has been underlined by employees working for our Coral decorative paints brand in Brazil, who volunteered their time and donated products to help revitalize a neighborhood in São Paulo. Organized as part of a unique community initiative called Everything in Color, the project involved renovating and repainting run-down buildings in Bixiga. It proved so successful that another three neighborhoods have also been lined up for a colorful facelift. "Bixiga is bursting with joy because up to now, nobody had done anything like this for us," said Walter Taverna, President of the Defense Society of the Traditions and Progress of Bella Vista and the Bixiga Heritage Center. Added São Paulo City Mayor, Gilberto Kassab: "May this AkzoNobel action be an example to other companies and I gratefully acknowledge Coral and the Coral family."


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